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AUD, NZD Remain Primary Beneficiaries of USD Weakness

FOREX
  • The USD downtick post-CPI has extended into a second session, helping keep the greenback under pressure against all others in G10. As was the case Wednesday, the main beneficiaries have been AUD and NZD currencies, which continue to erase a large part of the losses posted in late June, with AUD/USD continuing to narrow the gap with the $0.6900 handle - a move above which would put prices at the best levels since mid-February.
  • The USD Index has again plumbed a new pullback low, putting the pullback from the early July high above 3%. The moves accompany continued softening in market-implied Fed rate pricing, with the peak rate in November dropping close to 10bps over the past two sessions.
  • The winning streak in GBP/USD extends to six sessions, putting prices at best levels since April last year. This opens next resistance at the Apr21 high of 1.3090 and the 1.00 projection of the May 25 - Jun 16 - Jun 29 price swing. This week's spot rally has forced markets to significantly mark up the implied odds of further GBP/USD strength into year-end. Options markets now imply a 25.6% chance of spot above 1.35 by year-end (and 8.3% above 1.40), up from 13.2% and 3.9% this time last week.
  • Given the outsized market reaction to CPI yesterday, PPI comes into focus ahead as markets look for similar clues of slowing inflation pressures. June PPI is expected to slow to 0.4% on a Y/Y basis, and down to 2.6% ex-food and energy. Central bank speakers due Thursday include Fed's Daly and Waller as well as the release of the ECB accounts from the June policy decision.
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